Satrix RAFI 40 Index Fund - Sep 19
In Quarter 3, the MSCI EMEA index (which includes South Africa) fell 7.02%, which was worse than the returns of that of the MSCI Emerging Markets (EM) at -4.25% and far behind the MSCI World’s 0.53%. Year to date, the picture does not change much with the MSCI EMEA at 5.13%, relative to the MSCI EM return of 5.89% and way behind the 17.61% for the MSCI World. The Federal Reserve and the European Central Bank both eased policies to offset signs of weaker global growth. The US economy has weakened but is not in a recession mainly due to fiscal support offsetting the adverse impact of the trade war. The inversion of the US yield curve is perceived as tolling the bell for a near-term global recession whilst Draghi also added to the call for fiscal easing.
Adding to that, commodity prices took a dive with key iron ore benchmark prices plunging some 20% in a matter of weeks and the key industrial metal, copper, hitting two-year lows. The key global manufacturing indices have also dived and are at fiveyear lows - but was at least stable over the last two months.
In the UK, Eurosceptic Boris Johnson has become the prime minister after being elected as leader of the Tories. There appears a greater likelihood of a no-deal Brexit or, at the very least, yet another postponement of the October decision deadline. The market has discounted this in large part with a weaker Sterling. As business decisions get postponed, the UK could dip into a technical recession.
In South Africa the SA Reserve Bank held the policy rate unchanged at 6.5% at its September meeting, but its statement was more dovish than in July when it did cut. For Quarter 2 of 2019, GDP was 3.1% quarter-on-quarter, above the consensus of 2.4% and reversing the first three months’ contraction. SA headline CPI accelerated from 4.0% in January to 4.5% in March and then settled around 4.3% in August 2019. Forward rate agreements are now pricing in a 25bp rate cut in the next six months.
From a SA asset allocation perspective, cash (STEFI: +1.8%) outperformed SA bonds (ALBI: +0.8%) and the FTSE/JSE All Share Index returned -4.2% (Capped SWIX: -5.1%) in the third quarter of 2019. In Dollars, the MSCI SA (-12.60%) continued to underperform the MSCI EM (-4.25%) mainly due to a weak Rand (-6.9%). SA equities and SA bonds saw outflows of $5.7bn and $2.4bn respectively year-to-date. Properties, after stabilising somewhat over the first half of 2019, experienced a tough three months, losing about -4.4%.
On the corporate side the most important news was the Naspers spin-off of Prosus, which listed on 11 September 2019. Prosus is now the largest listed EU consumer internet company.
Portfolio performance and changes
The FTSE/JSE RAFI Top 40 Index returned -6.6% over the quarter, underperforming the FTSE/JSE Top 40 Index by 1.38%. On a 12-month rolling basis the FTSE/JSE RAFI Top 40 Index underperformed the FTSE/JSE Top 40 Index by 1.9%.
The relative underperformance for the quarter was mainly attributable to the large overweight position in Sasol, which declined a further 28% after being down 22% the previous quarter. Another detractor was the overweight position in Intu Properties, which continued its slide downwards, falling a further 39%.
The major contributors to relative outperformance were the fund’s overweight positions in Impala Platinum and Sibanye Gold, which returned 36.7% and 25.0% respectively.
The FTSE/JSE RAFI 40 Index is rebalanced once a year in March and is based on multiple fundamental factors in order to calculate the fundamental weights as per the ground rules. The data used to determine these factors are taken over the prior fiveyear period.
The mandate of the Satrix RAFI 40 ETF ('Satrix RAFI 40') is to track, as closely as possible, the value of the FTSE/JSE RAFI 40 Total Return index (J260). Satrix RAFI 40 is an index tracking fund, registered as a Collective Investment Scheme and is also listed on the Johannesburg Stock Exchange as an Exchange Traded Fund. Satrix RAFI 40 provides investors with the total performance of the FTSE/JSE RAFI 40 portfolio Total Return index (J260). In accordance with the investment policy of Satrix RAFI 40, all distributions (net of dividends withholdings tax) are re-invested on behalf of investors through the purchase of securities comprising the FTSE/JSE RAFI 40 portfolio Index (J260) in accordance with the calculation methodology of the total return version of this index, thereby increasing the net asset value of each Satrix RAFI 40 security.